More Challenges than Opportunities in Emerging DRC Oil Industry

Do you really think that oil will make a difference in this woman’s life?

Background

Africa’s oil industry is growing. Both off-shore and on-shore developments are projected to provide much-needed revenue for the Democratic Republic of the Congo (DRC). Yet fundamental challenges remain. After years of civil unrest and war, the security situation, both domestically and with its neighbours, remains tense. Violence continues, and more bloody conflict would undoubtedly have negative implications for future hydrocarbon projects. Symptomatic of the DRC’s long history of violence, governance regimes and business infrastructure remain weak and inefficient. This will further complicate investment and could result in negative consequences for the local population and environment.

Comment

Recently, Sub-Saharan Africa, and in particular states straddling the Great Lakes region, have experienced an oil boom. Hydrocarbon companies are now rushing to acquire exploration rights in the Democratic Republic of the Congo (DRC).

In recent months, tenements across the resource rich, yet unstable, nation have been auctioned off. Seemingly influenced by development opportunities, the Government in Kinshasa, the nation’s capital, has aggressively pushed potential investors to develop blocks quickly or face punitive action, including forfeiting contracts. According to the Financial Times, in the most recent instance, the incoming Oil Minister, Crispin Atama Tabe Mogodi, threatened to re-take an Israeli energy company’s offshore blocks that were awarded in 2010, but as yet have not been developed.

Antagonistic resource nationalism is not the only potential challenge faced by the nation’s hydrocarbon sector. Human Rights organisation, International Crisis Group (ICG), has cited security and governance issues as potential inhibitors to development opportunities, threatening the very viability of the sector in the country.

Despite a moderate improvement in security and the signing of various peace accords, the security situation in and around the DRC remains tense.

Internally, the ICG fears that if projections for oil reserves in the country’s east prove accurate, then this may exacerbate deep-rooted tensions. Consistent with this view, since the beginning of the year new rebellions have taken hold and armed groups have expanded their areas of influence in areas throughout the Kivu region, a key oil zone. As demonstrated so often in Africa, armed militia and the proliferation of supplies of small arms represent a significant threat to local populations. Additionally, exploration in areas where groups are competing for influence, may lead to the targeting of oil infrastructure, and even employees. Moreover, the organisation fears oil developments to the country’s east could erode the delicate political and economic control of Kinshasa, fostering separatist movements.

Indeed, further underscoring the DRC’s vulnerabilities, the state often ranks alongside Somalia on failed state indexes.

On the nation’s peripheries, analysts fear that the discovery of oil in border regions could re-ignite old sensitivities with neighbouring states, particularly Uganda and Angola. As is the case across much of the continent, the DRC lacks clearly defined and agreed borders. Sovereignty disputes were a significant issue during its conflict and, especially where oil is a factor, may provide yet another flashpoint and further strain its relations with neighbours.

To complicate matters further, while the DRC has ratified security and oil agreements with Uganda, such as the Ngurdoto Agreement in 2007, it has been reluctant, or unable, to implement many of the agreed initiatives. Of even greater concern is the fact that the recent bi-lateral dialogue has collapsed and the relationship between the two states is at its lowest point in some years.

Reflective of the DRC’s central position on the continent, it is not only Uganda that Kinshasa must be concerned about. Development in deep-water drilling technology has led to significant growth of oil projects in the Gulf of Guinea. Aiming to capitalise on this, the Government of the DRC has opened off-shore concessions to hydrocarbon companies. Angola, however, disputes a number of these potential petroleum zones. Dialogue has failed to provide an amiable solution. Indicative of worsening relations, Congolese nationals have been violently expelled from Angola and, typically, the Government in Kinshasa also adopted this policy.

Extractive industries have operated in the DRC for a number of years, even at the height of the nation’s conflict. Understandably though, given competing priorities and the need for revenue, governance regimes for the nation’s minerals and energy industries are undeveloped. Businesses are likely to face challenges from a lack of established procedures and transparent legal frameworks, combined with a cumbersome bureaucracy. In the past, the Government in Kinshasa has acted in an arbitrary and contradictory manner, making expropriations a very real possibility.

The DRC’s already vulnerable population may also be impacted by the growth of oil operations. As has been the case for many years in the state’s mineral sector, operations often occur without consideration for the local populace.

Nor is the impact limited to social sustainability issues. The degraded business environment of the DRC may result in companies operating outside international environmental conventions. Again, this projection is reinforced by current developments in the minerals sector. The nation’s copper industry, comprising both local and international companies, has a poor history of environmental protection. Periodically this results in a media focus on the issue. In the latest allegations of negligence, in April this year the Guardian accused British mining giant Glencore of polluting the Luilu river, a tributary in the Southern Katanga province.

Sadly, Kinshasa’s platform of developing tenements, before basic frameworks exist and challenges are resolved, does not bode well for the state. Oil – like copper before it and timber historically – may just be another feature of the DRC’s long history as a state afflicted by the paradox of plenty.

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